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A decline in the ISM manufacturing report from the US on Monday soothed nerves over an immediate withdrawal of liquidity by the Federal Reserve, boosting Wall Street. European stock markets Tuesday morning are reacting accordingly, trading modestly higher following previous session weakness but have come off intraday highs since the market open. Stimulus friendly remarks by Atlanta Fed head Lockhart aided the markets’ rebound with the Fed member suggesting the central bank remains committed to accommodative easing.

There’s little on the economic data plate today other than euro zone PPI and US trade balance so market participants are likely to remain hypersensitive to Fedspeak Tuesday with governor Sarah Raskin, Kansas Fed head Esther George and Dallas Fed chief Richard Fisher all scheduled to speak. Much of the attention is now switching to Friday’s nonfarm payrolls report which should provide a chance at spread betting profit taking and a better gauge of the Fed’s stance on stimulus at this month’s policy meeting.

Overnight, stocks in Asia traded cautiously but Japan’s Nikkei 225 staged a bit of a rebound on hopes that PM Abe will seek a review of the investment strategy of the GPIF and a large number of other semi-government funds at his update on growth strategy on Wednesday. The Nikkei’s move higher was largely on the back of market talk that Abe could prop up the country’s equity market by making the government’s pension fund buy more domestic stocks, rotating out of bonds. The USD strengthened versus JPY, moving back above Y100 [it dropped below Y100 for first time since May 9] further helping the Japanese stock market.

Over in Australia, the RBA left policies unchanged [the rate has been kept at a record low of 2.75%] a mild surprise to traders who had expected the central bank to react to the weakening of the Aussie dollar on the back of China’s slowdown. But, the RBA still reckons the Aussie dollar is too strong even after recent falls and would rather wait and see further weakness in the currency before cutting rates. But, with the Australian economy running below trend and with regional growth expected to slow further, it’s a matter of time before the RBA will have to cut rates further.

Over in Turkey, the main stock index there is stabilising Tuesday following a 10.5% plunge on Monday as nationwide protests rocked sentiment with investors fearful that this could be Turkey’s “Arab Spring”. Turkey’s PM is under pressure over his policies but financial markets are largely dismissing this as Turkey’s “Arab Spring” as the country’s government is democratic and not a dictatorship. The threat of an escalation of violence has receded somewhat overnight since the start of protests but the country’s largest trade union has announced a two-day strike which has the potential to cause further flare-ups.

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